Australia

Australian CBD Office Market valued at $114 billion

2012-09-26T05:00:00Z

Brisbane and Perth now account for 26% of capital stock by value, compared with 16% in 2001

AUSTRALIA, 26 SEPTEMBER 2012 – Jones Lang LaSalle has undertaken an exercise to calculate the investable universe of the Australian CBD office markets over the past 20 years. The market value of the six CBD office markets around Australia was $114 billion in mid-2012.

The analysis by Jones Lang LaSalle highlights that the resource-dependent markets of Brisbane and Perth are becoming larger and more relevant investment destinations.

Managing Director, Investments & Advisory, John Talbot said, “In 2001, the estimate for the size of the investable universe in Brisbane and Perth was $8.7 billion or 16% of capital stock by value. By mid-2012, those markets had increased to $29.3 billion or $25.8% of capital stock by value.

“Investors have taken note of the increased scale and depth of the Brisbane and Perth markets and are looking to acquire product to help re-weight their portfolios. The increased depth has improved the liquidity of Brisbane and Perth.”

“Moving forward, I expect to see a reduction in the historical liquidity risk premium applied to Brisbane and Perth and narrower yield spreads to the deeper, liquid markets of Sydney and Melbourne.”

The market value of Sydney has increased from $27.8 billion in 2001 to $48.3 billion in the middle of 2012.

“Whilst the market value of the Sydney CBD has increased, the rate of growth has been lower than other markets. As a result, Sydney’s share of capital stock by value has declined over the past decade – from 51.2% in 2001 to 42.3% in mid-2012,” said Mr Talbot.

The Jones Lang LaSalle Report titled, ‘Applying the concept of a value-weighted portfolio to Australian CBD office markets’ states that commercial property investors can modify this investment strategy that is used widely in the liquid markets of equities and fixed income.

Head of Capital Markets Research at Jones Lang LaSalle, Andrew Ballantyne said, “This strategy is only one of a number of allocation strategies that can be adopted by a fund manager. However, we think there is a case for using a value-weighted asset allocation strategy for commercial property when you consider the performance of the market over time.

“Our analysis shows that the share of capital stock by value across Australian CBD office markets has historically shown a close relationship with each state’s share of economic output.

“Therefore, investors should consider their future weighting to the Perth and Brisbane office markets, as projections are that both state’s share of national output will increase by 2021. WA is expected to account for 15.6% of Australia’s output in 2021 – 1 percentage point higher than in 2011. Meanwhile, Queensland’s share of national output will rise by 2.8 percentage points to 22% in 2021.

“The value-weighted asset allocation strategy can have some limitations in terms of diversification and while we don’t advocated this strategy being following slavishly, it does provide a useful reference point for investors benchmarking the performance of their portfolio against the market,” said Mr Ballantyne.